Merrill Lynch, along with Pierce, Fenner & Smith, will bring to the market this week yet another in a string of CDOs that incorporate both funded and unfunded assets and liabilities. The $1.5 billion Bernoulli High Grade CDO I will be the first CDO managed by Babcock & Brown Securities, a subsidiary of Sydney, Australia-based investment firm Babcock & Brown.

The deal is backed by 76% cash assets - mostly prime and subprime RMBS - and 24% credit default swaps referencing double-A rated ABS CDO assets. While the CDO is technically static, the manager has the option to substitute collateral up until a default happens or the notes are paid in full.

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